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Le Grand Tax Savings

01/29/2014

When you think of France, you probably think of food. The French are known throughout the world for their truffles, foie gras, and fine champagne. French chefs have spread the gospel of rich food and fine wine across the globe. Most of us think of “French” dining as the highest form of cuisine.

But it seems the French have a dirty little culinary secret they might not like the rest of the world to know. Would you believe they love McDonald’s almost as much as we do? That’s right, there are 1,258 golden arches across France, and France is actually McDonald’s most profitable market outside the states. McDonald’s outlets in France serve slightly more exotic fare than their American cousins — the “Premio au Parmesan” starts with the usual all-beef patty, then adds a ciabatta bun, parmigiano reggiano cheese, and creamy parmesan sauce. And French McDonald’s serve beer, too. But — French gourmands can still sneak in anytime for “le Grand Big Mac.”

Now, it seems, those French McDonald’s are being accused of whipping up a different kind of dish — specifically, cooking “the books.” Quelle horreure — can it really be true?

Here’s the issue. Different countries set different tax rates for the corporations that operate within their borders. Naturally, smart accountants working for multinational corporations want to minimize their taxes by shifting whatever profits they can from high-tax jurisdictions like the United States (where they pay up to 35%) to lower-taxed jurisdictions. Tech firms like Apple and Google have made headlines for using strategies like the “Dutch Sandwich” (which shifts income to tax-free Netherlands Antilles corporations) and “Double Irish” (which shifts profits to Irish subsidiaries, where they’re taxed at a low 12.5% rate). Some governments are working to close loopholes and make it harder to channel profits through lower-tax locations. But unless they change the rules, it’s all perfectly legal.

Last week, the French magazine L’Express reported that McDonald’s has funneled 2.2 billion euros of French earnings (roughly $3 billion) through subsidiaries outside France, avoiding several hundred million euros in corporate and value-added tax. For example, French franchisees pay their licensing fees for use of the brand and related intellectual property to a Luxembourg company called McD Europe Franchising SARL. The Luxembourg company then pays an annual fee on to the parent company here in the U.S. The franchisees then deduct those royalties from their French income, which is taxed as high as 33.33%. But for 2012, the Luxembourg entity paid just $3.2 million in tax on $172 million in profit.

For their part, McDonald’s responds that “McDonald’s pays all of its taxes in France on the totality of its revenue, in line with current legislation.” They add that they’ve paid a billion euros in company taxes since 2009 and they’ve cooperated fully with French tax authorities. French officials have launched similar investigations against Google, Amazon, Microsoft, and other corporations without finding fault.

Here’s the real lesson. McDonald’s didn’t just wait until the end of the year to add up their income and hope to find a few deductions to pay less tax. They sat down, looked at the law, and planned a proactive menu of strategies to pay as little as possible. That sort of planning is the key to paying less tax. And you don’t have to be a multinational corporation to do it. If you have your own business — even just a simple hamburger stand — call Bordeaux & Bordeaux CPA for the plan you need to pay less. We’re sure you’ll enjoy some healthy and nutritious savings!